LPG exports are anticipated to maintain an upward trajectory throughout the latter half of this year and into 2024, driven by heightened demand from China and amplified export potential from the U.S. Gulf region, maritime company Avance Gas highlighted in its quarterly report on Wednesday.

The surge in demand from newly established propane dehydrogenation (PDH) facilities in China and the preference for propane over naphtha as a feedstock by flexi-crackers have invigorated the LPG market in Asia this year. This surge has effectively countered the historical seasonal fluctuations in demand that typically result in weaker freight markets during Q2 and Q3, Avance Gas pointed out.

In the first eight months of the year, China's new PDH capacity already matches the total commissioned in the entirety of 2022, showcasing remarkable year-over-year growth. Projections indicate that run rates will rise to 86% in Q4 2023, up from 76% at H1 2023's end.

On the export side, the combination of increased U.S. LPG production and softer domestic demand is expected to persist, thereby keeping exports robust in the foreseeable future. U.S. LPG production is predicted to expand by approximately 4% from 2023 to 2024, attributed to heightened fractionation and terminal capabilities. This expansion includes increased export capacity for loading very large gas carriers (VLGCs) in under 24 hours, as announced by Enterprise Products Partners L.P. earlier in the summer.

In the Middle East, OPEC production cuts and Saudi Arabia's voluntary output reduction have resulted in a monthly impact of two to three VLGCs. However, the UAE and Qatar remain unaffected due to their LPG sourcing from natural gas, mitigating the impact of these cuts. Both countries have increased natural gas production and exports to compensate for Saudi Arabia's shortfall.

Avance Gas reported record high first-half profits, totaling $72 million in net profits for H1 2023. Q2 net profits reached around $35.7 million, nearly doubling the $18.4 million recorded in Q2 2022. CEO Øystein Kalleklev stated that a tight shipping market and favorable U.S.-East Asia arbitrage are expected to contribute to strong financial performance in H2 2023, with time charter equivalent (TCE) rates likely to strengthen in Q3.

Avance Gas has expanded its presence by procuring two newbuild LPG/ammonia vessels and entering the midsize gas carrier (MGC) sector in June. The company also ordered two additional vessels from Chinese shipbuilder CIMC in August. Delivery for the four MGCs is anticipated between 2025 and 2026. To finance this expansion, Avance Gas has divested its 2008-2009 VLGCs. This strategic shift aligns with the company's commitment to enhancing its carbon footprint and diversifying cargo capabilities.

Avance Gas's entry into the MGC market strengthens its exposure to the ammonia sector, reflecting a positive outlook for ammonia's increasing use in areas like marine fuel, power generation, and hydrogen carriers. The company emphasizes that production sites will be influenced by energy availability and cost, rather than demand, underpinning a promising long-term outlook for trading and seaborne transportation.